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Snow Job
by Mark M. Rostenko
Editor, The Sovereign Strategist
October 11, 2004

Stocks fell last week as the S&P 500 and Nasdaq turned around from new multi-month highs posted mid-week. The dollar reversed earlier gains to finish the week lower while gold rallied to within striking distance of a new bull market high. Crude oil futures exceeded $53 per barrel, taking great sport in exposing most analysts as the unjustifiably overpaid ninnies that most of them are.

And speaking of oil, in the words of the fine folk at Reuter’s Treasury Secretary Snow predicted that oil prices are “set to go down.” Clearly we’re nowhere near a top and if there’s one thing that Snow’s statement makes abundantly obvious it’s that oil prices are in fact set to go higher.

Uttering still more inanities about the oil situation, Snow also mentioned that the high price of oil is “creating headwinds for the otherwise very strong economy.” That would be the VERY strong economy that is down 900,000 jobs since GW took office. And yes, it’s also the very same VERY strong economy that has put an increase of 2.2% of real wages into the consumer’s pocket, barely 20% of that earned in the previous six recoveries (on average). That would also be the same VERY strong economy that is in the midst of the weakest recovery since before WW2.

But the average dingbat has nary the slightest clue about anything that happened prior to last Friday’s episode of Oprah, so the Snow job continues, uninterrupted, while everyone gets into a big ballyhoo about which of the two monkeys will look best dressed in a 3-piece suit for the next four years.

Speaking of strong economies, the folks at Challenger, Gray and Christmas reported last Tuesday that planned job cuts hit an 8-month high in September. Unless you work for the government, there’s really no way to put a positive spin on that news.

Why do employers plan to cut jobs? For the simple reason that they don’t like paying for people they don’t need when widgets aren’t really selling. In the words of John Challenger, “Weak hiring announcements last month are not a good indication of stronger job creation to come.?"

(Of course, if you’re a Fed Chairman you’ll use 9-syllable words to explain how the PRODUCTIVITY MIRACLE is making employment obsolete and that big job cuts are simply an indication that the hyper-productive 21^st century UberAmerican worker is now able to do the job of forty-seven late 20^th century workers. Hedonically adjusted, that’s 943 mid-20^th century workers. In dog years, of course.)

That news was followed on Friday by yet another disappointing jobs number. According to UPI, “U.S. businesses added 96,000 jobs to payrolls in September, the government reported on October 8.” It might be more accurate to say that “the government added the number 96,000 to its running total of fictitious jobs spun out of thin air via mathemagical formulas.”

The dollar tanked, stocks hit the skids and long-term interest rates plunged following release of the data. Three votes of NO confidence for the Snow job on the “very strong economy.”

Meanwhile gold, the world’s barometer of how wonderful a job the powers that be are doing of mismanaging global finances, rocketed to within striking distance of a new bull market high.

Clearly there’s quite the disconnect between what the markets are saying and what the Washington spin crew is spinning. (Shocking, is it not?) The stock market continues to struggle, remaining well below highs posted before this VERY strong recovery kicked in to VERY high gear. While last week’s new rally high in the S&P 500 looked briefly like the makings of an eventual new mini-bull market high, the gains were short-lived and swiftly rejected.

Was it merely a dip in an otherwise up market? Subtle indications from the other indices don’t argue strongly for that. While the S&P 500 has been relatively strong, the Dow and Nasdaq have lagged considerably from a technical perspective, offering evidence of the kind of subtle divergences that translate into eventual trouble. The Nasdaq was stopped short just above its 200-day moving average while the Dow didn’t even manage to exceed it. (The S&P 500 did, hence the divergence.) In addition, the Dow failed to exceed its recent rally high.

Perhaps action in the arguably outdated index isn’t all that significant, but it was a divergence between the Nasdaq and the other indices which first tipped us off to the possibility that the market had topped out early in the year. Conflicting signals between the three major indices are often a warning sign that recent action is not quite what it appears.

But if you want to talk about divergences, take a gander at the gaping one between the Dow Industrials and the Dow Transports. The Transports are at a 5-year high while the Industrials struggle well below a 3-month high.

What to make of the action? Are the Transports signaling future strength? I’m not a huge fan of Dow Theory applied strictly to the Dow indices, but I suspect the action simply confirms what we already know: that there is a huge disconnect between the markets and economic reality. And I simply don’t see “things being majorly out of whack” as a precursor to sustainable bull market gains.

Make of it what you wish, but the bottom line is that there isn’t much about this market that makes it worth the risk. Is the market cheap? No. Is it selling for less than economic fundamentals would justify? No. Is our collective financial house in order? No. Shall we rush to the market, inspired by the peace that’s breaking out all over? Probably not.

At best, the market stands to squeeze out a small gain on eventual relief from the uncertainty of which dingbat will occupy the Oval Office for the next four years. Beyond that it’ll take an extraordinary improvement from current conditions to sustain an advance.

© 2004 Mark M. Rostenko
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